# Example. Simple Interest If you deposit $600 in a bank

Example. Simple Interest If you deposit $600 in a bank account paying 4.5% annual interest, how much interest will the deposit earn in 1 years if the bank computes the interest using simple interest? Solution. Given P = 600 I = P rt r = 4.5% = 0.045 = 600 × 0.045 × 1 t = 1 = 27 - Add the result from Example (1) to 600 and use simple interest to find out how much is valued after 2 years, then do the same for the next year (3 years later). - Using compound interest formula, find the amount $25,400 will amount too when the interest rate is 4.8%, compounded quarterly for 18 years. -The tuition for the college you want your 5 year old to go to is currently $40,000. If tuition increase 3.9% each year: (a) How much is the tuition when is 18 years old? (b) With $20503.76 saved, what rate are you looking for in-order to save enough for college (compounded monthly for 13 years)? (c) If this increase continues at the same rate, in how many years will the tution double? -You are at a car dealership. After hours of waiting, the sale’s person finally says you will need to barrow $26,000 to drive home today. The loan will be for 5 years compounded monthly. What rate will be needed in order for the the total amount of the loan to be $29,656.55 (your maximum comfort level after 5 years of borrowing)? If the favorite bank of the dealer-finance-person offers a loan interest of 2.65% state why this is unacceptable. (HINT: if your first answer isn’t close to 2.65% then you might have done something wrong.)